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What Happens When Our Investor Risk Tolerance is Different?

We recently visited with a husband and wife couple over breakfast.  The atmosphere of the restaurant was enjoyable and the conversation was delightful.  We shared information about our family, friends, and recent travel.  However, half way through our breakfast there was a turning point in the conversation.  As you may have guessed, it was when we started talking about money.  More specifically, we began discussing investments and the risk associated with the couple’s overall investment allocation.  The husband has a very aggressive risk tolerance when it comes to investing, while the wife classifies herself as a conservative investor.  This is a common theme in our society when it comes to investing and risk tolerance for couples.  Typically, one spouse is an aggressive investor - always seeking to find the greatest rate of return, while the other spouse is comfortable preserving principal or in other words, what has already been saved.  Now the question is, who has the final say with the overall household investment risk?

Before we discuss solutions to this problem, it is important to define risk tolerance and asset allocation.  We will also provide examples of portfolios to help you understand how risk and asset allocation work together (just as you and your spouse should).

Risk Tolerance

Risk tolerance is your ability and willingness to lose some or all of your original investment in exchange for greater potential returns. An aggressive investor, or one with a high-risk tolerance, is more likely to risk losing money in order to get better results. A conservative investor, or one with a low-risk tolerance, tends to favor investments that will preserve his or her original investment (1).

Asset Allocation

Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk (1).

Investment portfolios have three main classifications - conservative, moderate, and aggressive.  Conservative asset allocation models typically range from 0% - 30% stocks and the remaining percentage allocated towards bonds.  Moderate asset allocation models typically range from 40% - 60% stocks and the remainder allocated towards bonds.  Aggressive asset allocation models typically range from 70% - 100% stocks and the remainder allocated towards bonds.

Below are examples of portfolios within each classification.

 Example: Conservative Asset Allocation  

       Asset Allocation: 80% Bonds/20% Stocks      

 Example: Moderate Asset Allocation  

       Asset Allocation: 50% Bonds/50% Stocks      

 Example: Aggressive Asset Allocation  

       Asset Allocation: 20% Bonds/80% Stocks      

Now that you understand the relationship between risk tolerance and asset allocation, let’s get back to the problem at hand.  Remember, the husband and wife we met were not in agreement with their risk tolerance.   They simply did not know how to determine a collective risk tolerance because they kept trying to determine who’s risk level outweighed the other’s.

The final decision with the household investment risk tolerance should not be dependent on one spouse.¬† In fact, this is the root cause of the problem itself. ¬†When it comes to money, households tend to delegate one spouse as the ‚Äúfinancial spouse‚ÄĚ or ‚Äúdominant spouse‚ÄĚ.¬† This leaves the other spouse as the ‚Äúnon financial spouse‚ÄĚ. ¬†So often, the ‚Äúfinancial spouse‚ÄĚ is the one who has the final say in all financial decisions and in this specific instance - the risk level of the household‚Äôs investments.¬† This is not the correct approach, as both interests must be a part of the overall decision. ¬†Both partners need to have a common understanding of what the money or investment portfolio is designed for.

To find common ground on risk tolerance, each partner must let go of the biases that do not let the couple move forward together.¬† One partner may have witnessed a parent having a downfall during the last recession, the other may have made thousands of dollars investing in a hot stock several years ago. ¬†Let it go, let it goooo ‚ô™ ‚ôę ‚ô¨ (you‚Äôre welcome) . ¬†Financial freedom to make collective, joint decisions is found once these past experiences are acknowledged and then removed from the thought process in order to allow for progress toward a shared vision.¬†¬†¬†

Here are some key points to consider if you and your partner are having difficulty finding common ground in your collective risk tolerance:

Honest conversation

Do not avoid having the conversation about your risk tolerance.¬† Every great relationship starts with open communication. ¬†Listen to the perspective of your partner and understand the ‚Äėwhy‚Äô behind his or her rationale for being a conservative, moderate, or aggressive investor.¬† Remember, defining values as a couple will help align your risk toward your goals.


What is the purpose of the funds invested?  We tend to look at dollars and cents as just that and not with the real purpose of what the money is being saved for.  Understand the financial implications of market swings and how your investment portfolio would be impacted.  Goals include saving for a home, purchasing a rental property, starting your own business.   If you are looking at starting a business soon, then it most likely does not make sense to invest those allocated funds into an illiquid or high risk investment. 


When do you and your partner expect to use the funds?  If you are saving money for a down payment on a house in the next few months, then it does not make sense to be invested in the stock market.  If you are saving for your child’s tuition in 18 years, then you are able to take on more risk because you have time to recover from market swings.  The longer time frame before you need the invested funds, then the greater risk you are allowed to take.  Again, this depends on the collective risk tolerance of your household, not just yours as an individual.

Unbiased advice

If you are having difficulty discussing risk tolerance and not able to come to a unified decision, then it is time to seek unbiased advice.  Allowing a third party into the conversation allows for better structure while that person can share unbiased opinions based on his or her own expertise and experience.  

As always, we are willing to to guide you and your partner in having these honest conversations.  Click here to find a time to talk.

- Dan

(1 ) www.investor.gov/additional-resources/general-resources/publications-research/info-sheets/beginners%E2%80%99-guide-asset

Disclaimer:¬† This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP¬ģ, or Daniel Slagle CFP¬ģ. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.

Dan Slagle
Founder, Fyooz Financial

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